GAC Notebook: What the Leaders Were Saying
As always CUNA's GAC is the premier conference to catch up with everyone. The quaint confines of the Washington Hilton & Towers guarantee you will run into a cadre of friends and colleagues. I will miss the old hotel, but am keeping an open mind about the convention center.
Here are some of the things credit union leaders were discussing with this prying publisher.
oSmall credit union survival/consolidation. This is an oldie but still goodie. Whether or not it makes political or economic sense to try and save small credit unions has been an interesting debate for years. Some believe if small credit unions aren't providing the products and services their members want, they should go the way of merger with a larger CU that can bolster their offerings. It's nothing more than economics to them.
The other school of thought is that small credit unions are good for the industry, specifically on the political front. Small credit unions represent political capital with lawmakers. People in this camp say if all Congress sees is large, sophisticated credit unions it gives credence to the banker argument that credit unions have expanded beyond Congress' intent, are not fulfilling their mission, and should be taxed.
I don't think size has anything to do with fulfilling the credit union mission. In fact large credit unions can probably do much more for the underserved and all segments of their membership than small CUs. On the small CU debate, I believe it is up to the leading credit union organizations--CUNA Mutual, corporates, large credit unions, CUSOs, and vendors with a large stake in this market, such as Fiserv--to collaborate and develop tools that can help small credit unions become more efficient on the back end. There should be turnkey products for compliance, core processing, lending, etc. Making small credit unions more efficient by aggregating back-end systems gives them a better chance of doing more for their members and thus of surviving. Should the industry rally to save all small credit unions at all costs? No, but they should give them the best chance possible with the right back-end support. Then it's up to the small CU to survive and thrive.
On the ongoing consolidation trend, many credit union leaders believe mergers will continue because competition is so fierce and as one CEO put it to me, "as you get bigger, things do get easier."
oCard Fraud, Portfolio Sales. The anger over card breeches is palpable. Credit union leaders feel they are at the mercy of merchants and processors that are not exhibiting best practice conduct with securing data. They want the card associations to hold their members accountable.
Interestingly, other credit union leaders think the fraud issue has been blown out of proportion. They say the incidents of fraud are miniscule compared to the billions of dollars of card transactions.
I think there needs to be continued focus on card fraud, but it shouldn't force CUs out of the business either. Cards are a key relationship product with members and they can have great ROA if run properly. One recent study from Raddon pegs credit union card ROA at 1.83%, which compares to 0.32% for auto loans, traditionally the bread and butter loan for many credit unions.
The reason card fraud should always be in focus is because it also carries reputational risk. If members are hit with fraud at X, Y, Z credit union they are likely going to remember X, Y, Z credit union and might not fully understand the role merchants and processors play. Credit unions like Pennsylvania State Employees CU, which has as sophisticated fraud protection as you'll find, should be held up as models that all credit unions can learn from. And clearly card associations have to evaluate their standards, but more importantly enforce what's on the books.
On the portfolio sell-off issue there seems to be more skepticism about the card portfolio purchaser options out there. While some portfolio buyers are clearly out for the best interests' of the credit unions and are not looking to make inroads with members with other products, credit union leaders believe other vendors are not as purist. I don't dare speculate on this topic because that's all it would be, speculation, but I heard it a number of times at the show.
oLafayette's Conversion Controversy. Leaders are downright offended by Lafayette's handling of the conversion, specifically after it failed. As one leader said to me, "They need to know when to give it up."
I also sensed less concern about a flood of conversions to banks coming down the pike. Unfortunately, I am not so optimistic. We have a couple in the mix now, and I think a few more are coming. To me even a couple of credit union conversions a year would be too much. Here's hoping they all get shot down by concerned members who realize the long-term value they'd be losing. The hostile takeover threat I discussed last year is also still looming.
oToo Many Players Doing the Same Things. Credit unions are getting more and more confused about the number of committees, task forces and organizations out there doing the same things. There are numerous ones focused on driving lending, helping small CUs, increasing members, evaluating new product areas CUs can get into, etc. I think credit union leaders are looking for fewer, more collaborative groups to tackle industry problems.
oNew Revenue Streams. Boosting earnings was not surprisingly a popular topic. One way of doing that is by generating non-interest income. Credit unions are even becoming travel agents (via purchase of a travel agency) to find new avenues of income. It seems everyone is looking for income streams that certainly aren't traditional
oTrade Association Politics/CURIA. The buzz over the Credit Union Regulatory Improvements Act being introduced during GAC was very intense. CUNA itself made no secret that it expected Tuesday would be the day, and what an impact that would have had on GAC. Tuesday came and went with no bill.
So what happened? The bill bogged down on the member business lending cap. While 20% is where it started, there has been an intense push for 25%. It doesn't look like Congressmen Paul Kanjorski and Ed Royce will budge on the 20% level. In fact as you are reading this column, a week after GAC, it's likely CURIA has been introduced with the 20% cap.
It's important credit unions understand that on its own CURIA has little chance of passing despite the growing number of co-sponsors. The bankers will continue to attack and then look for their own bill. Some mixing and melding will go on that will hopefully result in something both sides can live with.
GAC drove home to me that it's becoming more run of the mill to hear about Mica and NAFCU President Fred Becker not exactly being in alignment. In their defense, in those jobs, no matter who is leading the associations, those claims will always be there, and they each have turf to protect.
The CURIA push has been a good example of the different philosophies and approaches CUNA and NAFCU take. That's fine as long as credit unions are getting what they want in the end. If not, credit unions know that they have cards they can play. --Comments? E-mail email@example.com